Several other accounting procedures have been studied. Hong, Kaplan, and Mandelker found no evidence that the stock market was affected by the artificially higher earnings reported using the pooling method, compared to the purchase method, for reporting mergers and acquisitions.23 Biddle and Lindahl found that firms switching to the LIFO method of inventory valuation experienced an increase in stock price.24 This is to be expected in inflationary environments because LIFO valuation can reduce taxes compared to FIFO. They found that the larger the tax decrease resulting from the use of LIFO, the greater was the increase in stock price.In summary, empirical evidence suggests that accounting changes do not fool the market. Therefore, the evidence does not suggest that managers can boost stock prices through accounting practices. In other words, the market appears efficient enough to see through different accounting choices.
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